South Africa has overcome adverse initial conditions to achieve a remarkable fiscal transformation since the 1994 democratic elections, held amid uncertainty about its ability to maintain the rule of law and resist populist spending pressures. Constitutionally-based, durable and credible fiscal reforms have contained spending and rendered policy at all levels of government more transparent and accountable, and more predictable through multi-year budgeting. Extensive tax reform and more efficient tax collection has expanded revenue, permitting lower tax rates for both individuals and companies, and personal tax relief. Fiscal consolidation almost eliminated the budget deficit by 2005, and with improved debt management, has created a lower and more sustainable debt burden. While highly centralised revenue raising powers and greater decentralisation of expenditure to sub-national governments created a vertical fiscal imbalance, a strict no-bail out approach helped control provincial spending. The fiscal-monetary policy mix has stabilised the macro-economy and reduced uncertainty, reflected internationally in narrowed sovereign risk spreads and improved debt ratings. However, micro-service delivery in social expenditure has been disappointing (in some cases due to capacity constraints rather than inadequate fiscal allocations), and a long-term decline in infrastructure investment and capital stock is only belatedly receiving attention. The challenge is to increase social and infrastructure expenditure at a sustainable rate and to improve the quality of service delivery, to avoid undermining the gains in macroeconomic stability.

SUMMARY Since the transition to democracy in 1994, the South African government has engaged in a sustained programme of public financial management (PFM) reform across the national, provincial and local spheres of government. This study evaluates the progress of the nine provincial education departments (PEDs) in implementing the Public Finance Management Act of 1999 and explores the factors that facilitated or impeded reform. A PFM progress (PFMP) index is constructed to track each PED's performance from 1997/1998 to 2013/2014 and then used to benchmark its progress over time and relative to the education sector as a whole. The indicators comprising the PFMP index assess key PFM functions (budgeting, accounting, financial auditing and audits of performance information), financial leadership and the effectiveness of governance institutions such as audit committees. While there has been considerable progress in PFM, distinct differences in the quality and effectiveness of PFM practices across the nine PEDs remain. Stable top administrative leadership, availability of PFM skills, varying degrees of accountability and departmental capacity to establish PFM systems that conform to new accounting standards drive variances in reform outcomes. Copyright © 2016 John Wiley & Sons, Ltd.

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